Surge in Nickel Prices Raises Hopes for Australian Miners

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Researched by Industrial Info Resources Australia (Perth, Australia)--The recent increase in global nickel prices has brought some relief to Australian miners, with current prices almost 31% higher than those in the previous year. While other essential commodities, such as iron ore, coal and gold, continue to take a hit, nickel has surged for various reasons.

With a fifth of global nickel production, Indonesia's recent ban on mineral exports has sparked fears of a nickel supply shortage. Also, the political uncertainty in Ukraine has added to the pressure of possible trade restrictions on Russia, pushing the metal price even higher.

Nickel is used to make stainless steel, and the strong economic indicators coming from Europe and the improving U.S. economy are expected to widen the supply-demand gap. Many countries, including China, have been stockpiling nickel for many months in anticipation of an Indonesian ban. However, the inventories are predicted to run out by mid- to end-2015, provided the current circumstances continue.

London Metal Exchange (LME) prices for nickel touched $19,400 per metric ton in May, a gain of 37% since December 2013--before Indonesia started its export ban. In the absence of a change in Indonesia's export policy, and in light of the worsening eastern European political situation, Bank of America-Merrill Lynch expects nickel prices to reach $25,000 per metric ton within next 12 months.

The sudden increase in prices is causing a stir in Australia's nickel-mining industry, particularly in Western Australia (WA), which is home to all 11 of Australia's operational nickel mines. WA miner Western Areas Limited (ASX:WSA) is particularly excited about the global nickel market, which has seen a significant gain in its share prices in the last four months. Western Areas currently runs two operational nickel mines in WA, named Spotted Quoll and Flying Fox, and has a nickel concentrator with an estimated capacity of 550,000 metric tons per year.

BHP Billiton Nickel West (NYSE:BHP) (Melbourne) recently quit the nickel business, with its Leinster nickel mine now up for sale. BHP instead will focus on its "four-pillar" business strategy, consisting of coal, iron ore, oil & gas and copper commodities.

The other prominent nickel assets in WA include Murrin Murrin nickel/cobalt mine (Minara Resources Limited) and the Mariners nickel mine (Mincor Resources NL). Poseidon Nickel (ASX:POS) is developing a project to restart and refurbish its Mount Windarra nickel mine, and expects to begin production by the end of 2014.

However, despite favourable market conditions for nickel mining, Australian producers are being cautious and will be a bit reluctant to begin expanding.

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